If you’re a retired homeowner and need extra income, a reverse mortgage may be the answer.

Like many retirees, Kelsey Garman states, you may be house rich and cash poor. By that, he means that most of your assets are in your paid for, or nearly paid for, house. For example he says, you may own a $200,000 house, but don’t have enough income to live comfortably because the money tied up in your house doesn’t earn anything.

One answer, of course, would be to sell your home and buy a cheaper one possibly in another state, but most of us don’t want to do that even if it would free up some money. If that is the case then you may seriously want to consider a reverse mortgage.

To apply for a reverse mortgage the youngest homeowner must be at least 62 years of age or older. Then, if you qualify, a reverse mortgage will allow you to receive a tax-free monthly payment for as long as you live in and use your house as your primary residence. Fortunately, your home doesn’t have to be paid in full to qualify as long as you designate a cash advance from the mortgage to pay off the balance. Remember, this alone can reduce your living expenses by eliminating your house, tax, and insurance payments.

The way a reverse mortgage works is opposite of the way that a traditional one does. To explain it one must realize that with a traditional mortgage your income is turned into equity and with reverse mortgages your equity is turned into income. In other words, when you bought your home you had income and wanted to build equity but now you have equity and want income. In both cases you use debt to turn what you have into what you want.

In a reverse mortgage where you still owe a balance on the original cost of the house the mortgage doesn’t come due until the house is sold, or the last surviving homeowner dies. If you sell the house, however, the mortgage will be paid off from the proceeds of the sale and you will receive the balance. If you and your spouse die and the house is sold, the mortgage will be paid off and the balance paid to the estate of the last surviving homeowner.

On the plus side you can never be forced to sell your house to pay off the mortgage. Even if you receive monthly payments until you’re 110 or the value of your house declines so that the amount paid to you exceeds the value of the house you will still receive monthly payments and be allowed to remain in your home.

A reverse mortgage is not borrowing in the usual sense since borrowing usually means taking an advance on money you haven’t earned yet. In other words, you borrow today believing that you’ll earn enough in the future to repay the loan.

While a reverse mortgage is technically borrowing it isn’t borrowing against future income but rather it’s borrowing against home equity that you’ve built up. So you’re not counting your chickens before they hatch but rather you’re hatching the nest egg that you’ve already earned and saved.

With a traditional mortgage you pay back your loan with monthly payments. If you lose your job or your health, you could lose your home. But with a reverse mortgage you receive monthly payments no matter what happens.

The amount of the monthly payment a reverse mortgage can generate depends on your age and the location of your home. Using the $200,000 value of a home, for example, at age 66 you would receive monthly payments of about $620. if you prefer, you can take a lump sum payment rather than monthly payments.

The downside of reverse mortgages is the fees can be as high as 6 percent of the value of your house but not all reverse mortgages are equal and you can probably find a better deal than 6 percent.

Reverse mortgages aren’t necessary or desirable for every retiree. But if you think that you , or someone in your family, might benefit from one, do a lot of research. Be careful, and watch out for scams.

The best source of unbiased information is probably the National Center for Home Equity Conversion. You can visit their extensive website at www.reverse.org . [tags]Reverse mortgages, money, loans, borrowing, mortgage, National Centerd for Home Equity Conversion, additional income, seniors, Kelsey Garman[/tags]